More work performance through transparent incentives

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 (Image: Pixabay CC0)
(Image: Pixabay CC0)

Research team investigates the effectiveness of promised rewards


Bonuses and promotions - companies use incentives like these to motivate their employees to perform well. At the same time, many managers exercise discretion as to whom they reward, when and how. Researchers from the University of Göttingen, Bard College Berlin and the University of Frankfurt have investigated how the willingness of employees to perform changes when they expect a possible disappointment when a reward is promised. They found that vague formulations and criteria in the incentive system can have a negative impact. From this, the research team deduced what makes incentives effective. The results of the experimental study have been published in the journal Management Science.

A total of 866 people took part in laboratory and online experiments as part of the study. First, the subjects in the employer role decided whether they would make a promise to the subjects in the employee role that they would receive a bonus payment if they performed well. The employees then completed a work assignment with mathematical tasks in which the number of correct solutions increased the company’s income. Based on their performance, the managers then decided which of their employees to reward.

-Uncertainty about receiving the bonus payment can lead to a significant decrease in effort. We found this effect in employees for whom the non-fulfillment of the promise is associated with psychological costs," explains Holger A. Rau from the Faculty of Economics at the University of Göttingen. -This is particularly pronounced among people who expect their effort to have little influence on receiving the reward." The results of the study suggest that managers should limit their discretionary scope when designing incentive systems. -Transparent and objective criteria for rewards could be more effective than vague promises," says Stephan Müller from Bard College Berlin, who was involved in the study along with Volker Benndorf from the University of Frankfurt.

Original publication: Benndorf, V., Müller, S., Rau, H. A. The effects of betrayal aversion on effort provision when incentives are fragile. Management Science 2024. DOI: 10.1287/mnsc.2021.02405